U.S. Home Equity Declines Persist in Q4

According to the latest U.S. Home Equity & Underwater Report by ATTOM, 46.1 percent of mortgaged residential properties in the United States were classified as equity-rich in the fourth quarter of 2023. This designation indicates that the total estimated loan balances secured by these properties were less than half of their estimated market values.

This percentage marks a slight decline from the third quarter of 2023, where 47.4 percent of mortgaged homes were considered equity-rich. It also represents a decrease from the fourth quarter of 2022, which stood at 48 percent.

Conversely, the report reveals a marginal uptick in the proportion of mortgaged homes categorized as seriously underwater, rising from 2.5 percent to 2.6 percent in the final months of 2023. Properties classified as seriously underwater are those with loan balances exceeding 25 percent of their estimated market values.

Rob Barber, CEO of ATTOM, commented on these developments, noting the signs indicating a potential easing in the long-standing prosperity of the U.S. housing market. While not indicative of imminent crisis, Barber highlighted the softening of equity alongside a dip in resale profits in the preceding year, a departure from the soaring price trends observed in recent years.

The modest 2 percent annual growth in median home prices throughout 2023, the weakest since the aftermath of the Great Recession in 2012, reflects this shift. Factors such as rising mortgage rates, coupled with a tight supply of homes for sale, have tempered the upward trajectory of prices despite robust employment figures and a buoyant investment market.

Looking ahead, the housing market enters its traditional peak buying season amidst persistently high prices, posing financial challenges for many potential buyers. The outcome of this year’s peak season will provide valuable insights into whether the market has indeed entered a more stabilized phase in the long term.

Equity-Rich Mortgages Decline Across Majority of U.S. States

In the transition from the third quarter of 2023 to the fourth quarter of the same year, the proportion of mortgages categorized as equity-rich experienced a decline in 41 out of the 50 U.S. states. These declines were typically modest, ranging from one to three percentage points. The most significant decreases occurred predominantly in the Midwest and West regions.

Leading the decline were states such as Missouri, where the portion of mortgages classified as equity-rich decreased from 41.9 percent in the third quarter of 2023 to 37.3 percent in the fourth quarter of the same year. Similarly, Minnesota saw a decline from 39.5 percent to 35.9 percent, Michigan from 48.5 percent to 45.1 percent, Washington from 56.7 percent to 53.5 percent, and Utah from 56.8 percent to 53.7 percent.

Conversely, only nine states witnessed an increase in equity-rich levels during the same period, with notable improvements concentrated in the Northeast region. The most significant increases were observed in states such as Vermont, where the proportion surged from 79.8 percent to 82.8 percent, West Virginia from 30.5 percent to 32 percent, Wyoming from 39.9 percent to 41.2 percent, New Jersey from 45.9 percent to 46.8 percent, and Connecticut from 41.5 percent to 42.4 percent.

Slight Increase in Seriously Underwater Mortgages Across Most States

The proportion of mortgaged homes considered seriously underwater experienced a nationwide uptick, shifting from one in 40 during the third quarter of 2023 to one in 38 in the fourth quarter. This increase was observed in 42 states, with most states seeing a rise of less than one percentage point.

Primarily concentrated in the Midwest and South, regions already grappling with high levels of seriously underwater mortgages, the most significant quarterly increases were noted in Wyoming (with the share of mortgaged homes seriously underwater climbing from 5.9 percent in the third quarter of 2023 to 8.8 percent in the fourth quarter), Missouri (rising from 3.9 percent to 5.6 percent), Oklahoma (increasing from 4.6 percent to 5.5 percent), North Dakota (up from 4.6 percent to 5.2 percent), and Illinois (escalating from 4.4 percent to 5.1 percent).

Conversely, states witnessing a decrease in the percentage of seriously underwater homes from the third to the fourth quarter of last year included Idaho (falling from 2.7 percent to 2.3 percent), California (dropping from 1.6 percent to 1.3 percent), West Virginia (declining from 4.6 percent to 4.4 percent), Texas (decreasing from 2.4 percent to 2.2 percent), and Vermont (reducing from 0.9 percent to 0.7 percent).

Top Equity-Rich Homeowner States Concentrated in Northeast and West

During the fourth quarter of 2023, nine out of the ten states boasting the highest levels of equity-rich mortgaged properties in the U.S. were situated in the Northeast or West regions. Leading the pack were Vermont, where a staggering 82.8 percent of mortgaged homes were equity-rich, followed by Maine (60 percent), California (58.2 percent), New Hampshire (58 percent), and Idaho (57.6 percent).

Conversely, nine out of the ten states with the lowest percentages of equity-rich properties during the same period were in the Midwest or South. States recording the smallest portions included Louisiana (19.7 percent), Illinois (28 percent), Alaska (29.2 percent), Oklahoma (30 percent), and Maryland (30.2 percent).

Analyzing 107 metropolitan statistical areas across the nation with a population of at least 500,000, the prevalence of equity-rich mortgaged properties continued to be pronounced in the West and South regions. With all but four of the top 25 metros located in these regions, the leaders were San Jose, CA (69.1 percent equity-rich), San Diego, CA (63.7 percent), Portland, ME (63.6 percent), Los Angeles, CA (63.5 percent), and San Francisco, CA (61.8 percent). Notably, Miami, FL (61.8 percent) topped the list in the South region, while Grand Rapids, MI (51.7 percent) led in the Midwest.

On the flip side, the 15 metro areas with the lowest percentages of equity-rich properties during the fourth quarter of 2023 were predominantly in the Midwest or South. Baton Rouge, LA recorded the smallest proportion, with only 13.8 percent of mortgaged homes being equity-rich, followed by Little Rock, AR (26.1 percent), New Orleans, LA (26.2 percent), Des Moines, IA (26.9 percent), and Virginia Beach, VA (27.6 percent).

Notably, the portion of mortgaged homes deemed equity-rich witnessed a decline from the third quarter of 2023 to the fourth quarter of the same year in 80 out of 107 metro areas with adequate data, reflecting a trend of diminishing equity-rich properties in many regions. Similarly, the portion decreased from the fourth quarter of 2022 to the corresponding period of 2023 in 67 percent of the areas analyzed.

Top Equity-Rich Counties Spread Across Midwest, Northeast, and West

Out of 1,738 counties with a minimum of 2,500 homes carrying mortgages in the fourth quarter of 2023, the leading 30 equity-rich areas were concentrated in the Midwest, Northeast, or West regions.

Counties boasting the highest proportion of equity-rich properties included Addison County (Middlebury), VT (88.7 percent equity-rich); Chittenden County (Burlington), VT (88.3 percent); Benzie County (Beulah), MI (87.6 percent); Washington County (Montpelier), VT (85.2 percent); and Manistee County, MI (82.9 percent).

Among counties with populations exceeding 500,000, those with the highest equity-rich rates were Santa Clara County (San Jose), CA (70.1 percent equity-rich); San Mateo County, CA (69.9 percent); Orange County, CA (outside Los Angeles) (67 percent); Palm Beach County (West Palm Beach), FL (64.2 percent); and Alameda County (Oakland), CA (64.2 percent).

Conversely, seventeen out of the 20 counties with the lowest share of equity-rich homes in the fourth quarter of 2023 were situated in the South. The lowest proportions were recorded in Campbell County (Gillette), WY (3.6 percent equity-rich); Vernon Parish (Leesville), LA (7.6 percent); Lincoln County, MS (south of Jackson) (8.7 percent); Ascension Parish, LA (outside Baton Rouge) (9.9 percent); and St. Bernard Parish (outside New Orleans) (10.1 percent).

Among counties with populations exceeding 500,000, those with the smallest equity-rich portions were Baltimore City/County, MD (24.5 percent equity-rich); Cook County (Chicago), IL (25.6 percent); Lake County, IL (outside Chicago) (26.5 percent); Prince George’s County, MD (outside Washington, DC) (27.1 percent); and Anne Arundel County (Annapolis), MD (27.7 percent).

In the fourth quarter of 2023, among the 9,081 U.S. zip codes with at least 2,000 residential properties bearing mortgages, 38 percent, or 3,412 zip codes, boasted a remarkable statistic: at least half of the mortgaged properties were considered equity-rich.

Leading the pack, thirty-four of the top fifty zip codes hailed from California, Florida, and Massachusetts. Notable among these were zip code 34102 in Naples, FL, where a staggering 86.8 percent of mortgaged properties were equity-rich. Following closely was zip code 83340 in Ketchum, ID, with 86.4 percent, and zip code 02539 in Edgartown, MA, with 85.1 percent. Also making the list were zip code 94024 in Los Altos, CA, and zip code 92657 in Newport Coast, CA, both boasting 84.4 percent equity-rich properties.

Midwest and Southern Regions Lead in Seriously Underwater Mortgages

The Midwest and South regions retained their dominance in harboring the highest shares of seriously underwater mortgages, with nine out of the top ten states located in these areas during the fourth quarter of the previous year. Leading the pack were Louisiana, with 10.9 percent of mortgages seriously underwater, followed by Wyoming (8.8 percent), Mississippi (8 percent), Kentucky (6.3 percent), and Missouri (5.6 percent).

Conversely, states with the smallest shares of seriously underwater mortgages included Vermont (0.7 percent), New Hampshire (1 percent), Rhode Island (1 percent), Massachusetts (1.2 percent), and California (1.3 percent).

Among 107 metropolitan statistical areas with populations exceeding 500,000, Baton Rouge, LA, took the lead with 12.3 percent of mortgages seriously underwater, followed by New Orleans, LA (7.6 percent), St. Louis, MO (6.4 percent), Jackson, MS (6.1 percent), and Syracuse, NY (5.7 percent).

Furthermore, among the 9,081 U.S. zip codes hosting at least 2,000 mortgaged properties in the fourth quarter of 2023, only 36 locations reported more than 20 percent of properties as seriously underwater. Notably, the top five zip codes with the highest shares of seriously underwater properties were 82716 in Gillette, WY (88.4 percent), 82718 in Gillette, WY (79.9 percent), 39601 in Brookhaven, MS (75.3 percent), 65265 in Mexico, MO (46 percent), and 39648 in McComb, MS (39.5 percent).

Clare Trapasso
Clare Trapasso
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